5

3 B

1
4
A
2
C

The Elliot-Wave-Principle
Master and ride the waves
The Elliot-Wave-Principle

▪ Historical background
▪ Fundamental characteristics
▪ Fibonacci as the foundation of the "Wave-Principle"
▪ Motive-Waves
▪ Corrections
▪ Guidelines
 The beginning
• Monograph "The Wave Principle" was published in 1938 by Charles J. Collins

• Based on original work of Ralph Nelsen (R.N.) Elliot

• Elliot was affected by the Dow-Theorie

• He said the "Wave-Principle" is a needed addition to Dow`s theory

• 1946 - Finished his works - "Nature`s Law –The Secret of the Universe"

• A. Hamilton Bolton published the "Eilliot-Wave Supplement" - Bank Credit Analyst

• 1967 - A.J. Frost lead on his project

• 1978 - Worked with Robert Prechter and created "Elliot-Wave-Principle"

• 1980 – Prechter published "The Major works of R.N. Elliot"

 The basic principle
• Simply put, movement in the direction of the trend is unfolding in 5 waves (called motive wave) while any
correction against the trend is in three waves (called corrective wave).

• The movement in the direction of the trend is labelled as 1, 2, 3, 4, and 5.

• The three wave correction is labelled as a, b, and c.

• These patterns can be seen in long term as well as short term charts.
5
• Smaller patterns can be identified within bigger patterns.

3 B

1
4
A

2 C
Fundamental characteristics

Three important aspects of the "Wave-Theorie" in this row and importance:

1. Formation

2. Ratios

3. Time
Formation

Refers to the Wave-Pattern: The most important element of this theory!

5

3 B

1
4
A

2 C
Ratio-Analysis

• Measures retracement and extension-levels

• Entry and target-points

• Measures coherences of different waves

Extension of wave 2 ?

Extension of wave 1 ? B

Retracement of Wave 2?
A
Retracement of Wave 1? C
Time

• Made to measure chronological time ratios between waves

• Used to confirm formations and ratios of waves

• Less common because less reliable

4days

6 days B
Retracement of Wave 2?

4 days

1 day
A

1 day C
The original idea

Was developed for the stock-index "Dow & Jones".

Simply put:
This theory implies that stock-markets show repeating rhythms
containing 5 impulsive and 3 following corrective Waves. Impulse-phase Correction
5
A complete cycle consists of 8 Waves overall.
3
Cycle 2 B
B 1
5
Cycle 1 3 4
1 A C
5 2
3 B 4 A
1 C
2
4 C
2 A
Impulse-phase Correction
Impulse-Phase Correction
Every wave is a part of a wave

• From Grand Supercycle (200 years) - Subminuette degree

• A wave contains waves Wave 5

• Impulse-Waves contain five waves 5
• Correction waves contain three waves Wave 3 Wave 4 3 (5)
1
(3) 5
B
Wave 2
3
4
Wave 1 2
1
(1) A C
5
B
4 (4)
3 2
A
2
4 C (2)
Impulse-Wave Correction
1 Impulse-Wave Correction
 Waves subdivided in Waves of next lower period!

(1)
Weekly Chart
5

3
A

1
(2)
4 C

2 Daily Chart

Impulse-Wave Correction
Waves subdivided in Waves of next lower period!
Fibonacci Ratios as the foundation

Fibonacci Summation rule:

This series takes 0 and adds 1 as the first two numbers.

Succeeding numbers in the series adds the previous two numbers .

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89,144...and so on

The Golden Ratio (1.618) is the result of dividing a Fib-Number with

the previous one in the series.

EXAMPLE: 89 / 55 = 1.168
Fibonacci Ratios as the foundation

Fibonacci Retracement in technical analysis and in Elliott Wave Theory refers to a market correction (counter
trend) which is expected to end at the areas of support or resistance denoted by key Fibonacci levels.

The market is then expected to turn and resume the trend again in the primary direction.

Fibonacci Extension refers to the market moving with the primary trend into an areas of support and resistance
at key Fibonacci levels where target profit is measured. Traders use the Fibonacci Extension to determine their
target profit.
Important Retracement- & Extensions-ratios

Retracements: Extensions:
• 14,6% (0.146) • 61,8% (0.618)

• 24,6% (0.236) • 100% (1.00)

• 38,2% (0.382) • 123,6 (1.236)

• 61,8% (0.618) • 161,8% (1.618)

• 76,4% (0.764) • 200% (2.00)

• 85,4% (0.854) • 261,8% (2.618)

• 323,6 (3.236)

• 423.6% (4.236)
Types of "Motive Waves"

There are two types of "Motive Waves":

• Impulse-Wave

1. Impulse with Extension

2. Impuls –Wave - Truncation

• Diagonal-Wave
1. Leading Diagonal

2. Ending Diagonal
 The "Impulse-Wave"
• The classic "Impuls-Wave" is the most common "Motive-Wave" which is the easiest to identify.

• This Wave consists of 5 Subwaves.

• The inner structure of this Wave is a 5 – 3 – 5 – 3 –5 pattern.

• It contains three "Impulse-waves" (Wave 1, Wave 3, Wave 5) and two corrective Waves (Wave 2 and Wave 4).

5
3

1
4

Important:

There are different rules that defines this wave!

2
If one of these rules are violated, then the structure is not an Impulsive-Wave!
 The rules of an "Impulse-Wave"

Fibonacci Ratio useful to measure target of waves within the E.W structure.

• Wave 2 is typically 50%, 61.8%, 76.4%, or 85.4% of wave 1

• Wave 3 is typically 161.8% of wave 1

• Wave 4 is typically 14.6%, 23.6%, or 38.2% of wave 3

5
• Wave 5 is typically 61.8%, 100%, or 123.6% of wave 1

3
Wave 3 can`t be the shortest wave of all "Impuls-Waves" 1,3,5.

1 Wave 4 does not overlap with the price territory of wave 1.

4

Wave 2 can’t retrace more than the beginning of wave 1.

2
 The "Wave Extensions"
• Impulses usually have an extension in one of the "Motive-Waves" (either wave 1, 3, or 5).

• Extensions are elongated impulses with exaggerated subdivisions.

• Extensions frequently occur in the third wave in the stock market and forex market.
Commodities market commonly develop extensions in the fifth wave.

(5)
[5] 5

[3] 3
(3) 1
5
5
(3) 4
3 2
(4) (3) (1)
(4)
1
(1) 4 [4] (1) (2)
[1] 2
(4)
(2)
(2) Extension in Commodity market
[2] Extension on Forex- and Stockmarket
 The "Diagonal Waves"

• A "Diagonal Wave" is the second type of "Motive-Waves" which is not an Impulse-Wave.

• This wave consists of 5 sub-waves and can either show a 5-3-5-3-5 or a 3-3-3-3-3 pattern.

• Typical characteristic is that Wave 4 overlaps Wave 1 and often creates a "Wedge-Shape", either
expanding or contracting.

• There are different types of Diagonal Wave-Patterns.

5
5
3 3
1
Wave 4 does overlap Wave 1
1 Wave 4 does not overlap Wave 1
4
4
2
2 Impulse-Wave Diagonal-Wave
 The "Leading Diagonal Wave"
• A "Leading Diagonal" is a special type of "Motive-Wave".

• It appears as a subdivision of Wave (1) of an Impuls, or wave (A) in a Zig-Zag.

• Typical characteristic is that Wave 4 overlaps Wave 1 and often creates a "Wedge-Shape". (5)
• This pattern can appear in a 5-3-5-3-5 or a 3-3-3-3-3 pattern!
(3)
• Leads market into an Impuls (5-3-5-3-5) or a correction (3-3-3-3-3).

(1)
5
V
3
V III (4)
1 b I
IV
V III a
III b II
I
IV c
I 4
IV a II

c (2)
II
2
 The "Ending Diagonal Wave"
• An "Ending Diagonal" is a special type of "Motive-Wave".

• It appears as a subdivision of Wave (5) of an Impuls, or wave (C) in a Zig-Zag.

(5)
5
• Typical characteristic is that Wave 4 overlaps Wave 1 and is often also creating a "Wedge-Shape". c

• The subdivision of an "Ending Diagonal" is 3-3-3-3-3.

3
c
• It usually shows the end of an impuls or correction! a
1
c
b a a
(3)
c
a a 4
b
c
(1) 2
b
(4)

(2)
 Let`s talk about corrections

When market moves against the trend of one higher degree, they do so with an apparent struggle.

This resistance prevents the pattern that forms from developing a motive type of structure, and the patterns that form
are more varied than in the motive wave type.

Two styles of corrective waves:

Sharp correction:

Moves sharply against the trend like a Zig-Zag-Pattern!

Sideways correction:

Appears to form a flat type of structure that often goes back to the price of where it began before ending the correction.
 Let`s talk about corrections

• More difficult to indentify

• Difficult to forecast

• Corrections do never contain 5 waves - except the triangle!

Types of corrections

• Zig-Zags (A-B-C)

• Flats (A-B-C)

• Triangles (A-B-C-D-E)

• Complex combinations (W-X-Y...W-X-Y-X-Z)

 Pattern 1: Zig-Zag - A simple three-wave correction

• The A-B-C correction pattern subdivides into 5-3-5 internal wave pattern.

• Waves A and C tend towards equality in length.

• The A-B-C correction wave usually appears in the position of wave '2'.

• An A-B-C correction wave will usually target the 61.8% retracement of the trend move.

5
B C
A

A
C B
5
Impulse-Wave Zig-Zag-Pattern after impuls Impulse-Wave Zig-Zag-Pattern after impulse
 Pattern 1: Zig-Zag – But why 5-3-5?

• Wave B = 50%, 61.8%, 76.4% or 85.4% of Wave A Wave A

• Wave C = 61.8%, 100%, or 123.6% of wave A Wave B
• If waveC = 161.8% of waveA, waveC can be a wave Wave C
2
3 of a 5 waves impulse. c (B)
4
• Thus, one way to label between ABC and impulse is a 2
whether the third swing has extension or not. 1
3 b 4
1
5 5
B (A) 3

Characteristics: 5 (C)

A 1. Wave B doesn`t touch the starting point of wave A

C 2. Wave C creates a lower low, violating the low of Wave A

3. Wave B tends to retrace waveA with 50% - 61,8%.

Wave 5 of impulse Zig-Zag-Pattern after impuls
 Pattern 2: Double-Zig-Zag (W,X,Y)

Wave (Y)

Wave (X)
Wave (W)

5 (X)
B C
A B

A B
C A
(W) C
(Y)
Double Zig-Zag connected with an A-B-C Pattern
Wave 5 of impulse
 Pattern 2: Double Zig-Zag

Zick-Zack 1: Wave [W]

A-B-C: Wave [X]

2 (B) Zick-Zack 2: Wave [Y]
4
c [X] C
a 2
1
3 4 A
b
2
5 1 (B)
4 c
(A) 3 a
B 1 2
5 3 4
b
(c) 5
1
[W] (A)
Characteristics: 3

1. Appears as a complex correction-pattern. 5

2. Two different Zick-Zack-Patterns connected with an ABC-Pattern. (c)
[Y]
3. Wave [X] tends to retest the top of Wave B of Wave [W] before we head into Wave [Y].
Pattern 3: Regular Flat (A-B-C)

Characteristics:
• A regular "Flat" is a correction against the trend divided in a 3-3-5 Pattern creating a "Range".

• Often used as a sign of strenght of the current trend, especially in the Bull-Market.

• Wave B retests the starting point of wave A.

• Wave C ends at the low Wave A.

5 B Flat-Pattern Bearmarket

A C

A C

Flat-Pattern Bullmarket B
 Pattern 3: Regular Flat – But why 3-3-5?

• Wave A contains 3 Waves

c (B)
• Wave B contains 3 Waves
2
b a
• Wave C contains 5 Waves 4
1
3
a b
5 B
c 5
(C)
(A) Wave B
Wave A Wave C

A C

Fibonacci Ratios:
• Wave B = 90-100% of waveA
Wave 5 of impuls Regular "Flat-Pattern" after impuls
• Wave C = 61.8%, 100%, or 123.6% of wave AB
Pattern 4: Expanded Flat (A-B-C)

• An "Expanded Flat" is a correction against the trend divided in a 3-3-5 Pattern.

• Wave B retraces more then 100% of Wave A and creates a new high.

• Wave C breaks through the low of Wave A and creates a new low.

Expanded Flat in bearmarket

B C
5
A

A
C
Expanded Flat in bullmarket
B
 Pattern 4: Expanded Flat

(B)
• Wave A contains 3 Waves c

• Wave B contains 3 Waves

2
b a
• Wave C contains 5 Waves 4
1

B
a b
5 3
c
(A)
Wave A Wave B Wave C 5 (C)

A
C Fibonacci Ratios:
• Wave B = 123.6% of waveA
Impulse-Wave Expanded "Flat-Pattern" after impuls • Wave C = 123.6% – 161.8% of waveAB
Pattern 5: Running Flat (A-B-C)

• An runnig "Flat" is a correction against the trend divided in a 3-3-5 Pattern.

• Wave B retraces more then 100% of wave A and creates a new high.

• Wave C fails travel the full distance, falling short of the level where wave A ended!

• Subdivision of Wave C is in 5 waves Impulse or Diagonal!

Expanded Flat in bearmarket

B
5
A
C

C
A

Expanded Flat in bullmarket

B
 Pattern 4: Running Flat (A-B-C)

(B)
• Wave A contains 3 Waves c
2
• Wave B contains 3 Waves
4
2 a
• Wave C contains 5 Waves 1 5

B 3
1 b (C)
5
3
(A)
Wave A Wave B Wave C

C
A
Fibonacci Ratios:
• Wave B = 123.6% of waveA
Impulse-Wave Running "Flat-Pattern" after impuls • WaveC = 61.8% – 100% of wave AB
 Triangles: A-B-C-D-E Patterns

• Elliott wave triangles are overlapping five wave corrections labeled A-B-C-D-E.

• Triangle waves usually contract the range of price action from beginning to end.

• Each internal wave takes a three wave form, and the triangle subdivides into a 3-3-3-3-3 pattern.

• An A-B-C-D-E pattern causes a sideways movement that is usually associated with decreasing volume and volatility.

• Usually appears in WAVE 4, B, X, and Y.

• Contracting triangle

• Descending triangle

• Ascending triangle

• Expanding triangle
Pattern 6: Contracting triangle

• A "contracting triangle" is subdivided in five internal waves (A-B-C-D-E).

• Each wave is divided in three waves (a-b-c).

• Every subsequent wave has a reduced length contracting the range.

• The trend tends to continue after wave E.

Contracting triangle in bearmarket

3 A
B
D C E

E D
C 3 B
A

Contracting triangle in bullmarket

 Pattern 6: Contracting or symmentrical triangle

3
(B)
c
(D)
c
b a b
b
a
a
a b a b c
(E)
c
(C)
c
Characteristic:
(A)
Waves creating lower highs and higher lows!
Pattern 7: Ascending triangle

3 B D

E
C
A • A "Ascending triangle" is subdivided in five internal waves (A-B-C-D-E).

• Each wave is subdivided in three waves (A-B-C).

• The ascending triangle usually appears in an uptrend.

Ascending triangle in bullmarket
 Pattern 7: Ascending triangle

3 (B) (D)
c c

b
b
a
b a

a
a
a b b c (E)

c
(C)
c
Characteristic: (A)
Waves creating equal highs but higher lows.
Pattern 8: Descending triangle

• A "descending triangle" is subdivided in five internal waves (A-B-C-D-E).

• Each wave is subdivided in three waves (a-b-c).

• The descending triangle usually appears in a dowtrend.

A
C
E

3 B D

Descending triangle in a bearmarket

Pattern 9: Expanding triangle

D
B
3
• An expanding triangle appears in both downtrends and up-trends.

• The top trend line rises and the bottom trend line falls.

• The overall range of prices expands into wave 'E'.

A
C
E

Expanding triangle in bullmarket

 Pattern 9: Expanding triangle
(E)
(C) c
(A) c
c

b a
a b
a b a
b a
b
3
c
(B) c
(D)
Characteristic:

Waves creating higher highs and lower lows.

Pattern 10: Elliott wave double-three (W-X-Y)

1. A combination of two corrective structures labelled as W-X-Y

2. Wave (W) and Wave (Y) subdivision can be zigzag, flat, double three of smaller degree, or triple three of smaller degree.

3. Wave (X) can be any corrective structure.

[X]
b C b
d
A
e
c
B [Y]
a a
c Fibonacci Ratio:
[W]
• WaveX = 50%, 61.8%, 76.4%, or 85.4% of waveW
Triangle • WaveY = 61.8%, 100%, or 123.6% of waveW
Flat
Any three • WaveY can not pass 161.8% of waveW
 Guideline of Equality

1. Two of the motive sub-waves in a five wave sequence are

equal in lenght.

Wave 5 is equal to height of Wave 1

2. According to the rule that Wave 3 can`t be the shortest
5 wave of an "Impulse-Wave", Wave 1 and 5 are usually equal.
3
Wave 3 longer than Wave 1

1 3. This is helpful for potentially projecting the end of Wave 5 in

4 an impulse if you recognize Wave 3 as the longes wave.

2
Guideline of Alternation

1. This guideline says that within an Impulse that the forms for
Wave 2 and Wave 4 will alternate.

2. If Wave 2 is a sharp correction, Wave 4 will be a sideways style of 5

correction.

3. If Wave 4 is sideways, Wave 2 was probably a sharp one. 3

4. Useful for anticipating the end of a Wave 4 correction within a
suspected impulse. 1
4
Flat style correction

2
Sharp style correction
Guideline of Alternation within correction

• This guideline says that within a correction that the forms for Wave A and
Wave B will alternate within a "3Wave correction".

• If Wave W is a flat – Wave X might be a Zig-Zag.

• If the correction begins with a simple pattern for Wave A, we expect Wave
B and C to be more complex.

Zig-Zag (X) b Any three

b
c (X)
b c
a a

b c
a c a b (Z)
a
(W)
c (Y) Running Flat
Regular Flat
Expanded Flat
Guideline of Depth

1. This guideline says that "Corrective Waves" will often correct

down or up to the territory of the previous Wave 4 of the lesser
degree.

2. This does not nescessarily mean that it will reach the bottom of
the previous Wave 4 but probably will reach the span of it.

3. This is often a good place for the market to find a support or

resistance before the trend continues.

5
3 b

a
1
4 c

2
The three HOLY RULES to start counting!

▪ Wave 2 never retraces more than 100% of wave 1.

▪ Wave 3 cannot be the shortest of the three impulse waves, namely waves 1, 3 and 5.

▪ Wave 4 does not overlap with the price territory of wave 1, except in the rare case of a
diagonal or triangle formation.